Chinese Banking Reserves
From Jim Jubak at MSN: It was expected, and some innocent bystanders paid the price. On June 16, the People's Bank of China raised its reserve requirements effective July 5.
Banks will be required to keep an extra 0.5 percentage points for a total of 8% of their capital in reserve. This will have the effect of taking about 150 billion yuan (or about $20 billion) in liquidity out of the banking system.
The measure was a direct response to May statistics showing that money supply had climbed by a red-hot 19% from a year earlier. I doubt that the move will do much to slow China's growth or the rampant speculation in real estate and other assets that so concerns Beijing.
Many banks are likely to ignore the order or cook their books to show compliance. But global stock markets disagreed. Stocks of commodity producers that provide raw materials to China sold off after the move.
Banks will be required to keep an extra 0.5 percentage points for a total of 8% of their capital in reserve. This will have the effect of taking about 150 billion yuan (or about $20 billion) in liquidity out of the banking system.
The measure was a direct response to May statistics showing that money supply had climbed by a red-hot 19% from a year earlier. I doubt that the move will do much to slow China's growth or the rampant speculation in real estate and other assets that so concerns Beijing.
Many banks are likely to ignore the order or cook their books to show compliance. But global stock markets disagreed. Stocks of commodity producers that provide raw materials to China sold off after the move.
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